IDEAS home Printed from https://ideas.repec.org/a/kap/iaecre/v20y2014i1p73-8610.1007-s11294-013-9449-5.html
   My bibliography  Save this article

The Impact of EMU Enlargement on Structural Reforms: A Political Economy Approach

Author

Listed:
  • Louis Jaeck
  • Sehjeong Kim

Abstract

This paper analyzes the setting of labor market reforms in the European Monetary Union (EMU), as a political compromise pressured by the lobbying of business interests and trade unions. Using a common agency model of lobbying, we model the impact of distorted and non-distorted Central Bank monetary policy on EMU member state incentives to reform its labor market. Paradoxically, a majority of citizens who do not support the reform can lead to an optimal level of reform. We also show that, in a context of EMU enlargement, inflationary policy generates a status quo if there is a majority of non-supporters. Surprisingly, inflationary policy enhances the reform if the share of non-supporters over supporters increases, and weakens it if this share decreases. Copyright International Atlantic Economic Society 2014

Suggested Citation

  • Louis Jaeck & Sehjeong Kim, 2014. "The Impact of EMU Enlargement on Structural Reforms: A Political Economy Approach," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(1), pages 73-86, February.
    • Handle: RePEc:kap:iaecre:v:20:y:2014:i:1:p:73-86:10.1007/s11294-013-9449-5
    DOI: 10.1007/s11294-013-9449-5
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11294-013-9449-5
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11294-013-9449-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
    2. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    3. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(1), pages 1-31.
    4. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    5. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    6. Nicola Brandt & Jean-Marc Burniaux & Romain Duval, 2005. "Assessing the OECD Jobs Strategy: Past Developments and Reforms," OECD Economics Department Working Papers 429, OECD Publishing.
    7. Duval, Romain, 2008. "Is there a role for macroeconomic policy in fostering structural reforms? Panel evidence from OECD countries over the past two decades," European Journal of Political Economy, Elsevier, vol. 24(2), pages 491-502, June.
    8. Calmfors, Lars, 2001. "Unemployment, Labor Market Reform, and Monetary Union," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 265-289, April.
    9. Forder, James, 1996. "On the Assessment and Implementation of 'Institutional' Remedies," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 39-51, January.
    10. Zhihao Yu, 2005. "Environmental Protection: A Theory of Direct and Indirect Competition for Political Influence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(1), pages 269-286.
    11. Jan J. Rutkowski & Stefano Scarpetta, 2005. "Enhancing Job Opportunities : Eastern Europe and the Former Soviet Union," World Bank Publications - Books, The World Bank Group, number 7408.
    12. Wyplosz, Charles (ed.), 2001. "The Impact of EMU on Europe and the Developing Countries," OUP Catalogue, Oxford University Press, number 9780199245314.
    13. Vladimir Gimpelson & Rostislav Kapelyushnikov & Anna Lukyanova, 2010. "Employment Protection Legislation in Russia: Regional Enforcement and Labor Market Outcomes," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(4), pages 611-636, December.
    14. Lehmann, Hartmut & Muravyev, Alexander, 2009. "How Important Are Labor Market Institutions for Labor Market Performance in Transition Countries?," IZA Discussion Papers 4673, Institute of Labor Economics (IZA).
    15. Philipp Maier & Maarten Hendrikx, 2002. "Implications of EMU enlargement for European monetary policy: A political economy view," Macroeconomics 0207007, University Library of Munich, Germany.
    16. Hefeker Carsten, 2011. "Policy Uncertainty and Economic Reforms in a Monetary Union," German Economic Review, De Gruyter, vol. 12(3), pages 274-285, August.
    17. Andrew Hughes Hallett & Svend E. Hougaard Jensen, 2003. "On the Role of Labour Market Reform for the Enlargement of a Monetary Union," CESifo Economic Studies, CESifo Group, vol. 49(3), pages 355-379.
    18. Elżbieta Bednarek-Sekunda & Richard Jong-A-Pin & Jakob de Haan, 2010. "The European Economic and Monetary Union and Labour Market Reform," European Union Politics, , vol. 11(1), pages 3-27, March.
    19. Yu-Bong Lai, 2006. "Interest Groups, Trade Liberalization, and Environmental Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(2), pages 269-290, June.
    20. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
    21. Bryan Caplan, 2007. "Introduction to The Myth of the Rational Voter: Why Democracies Choose Bad Policies," Introductory Chapters, in: The Myth of the Rational Voter: Why Democracies Choose Bad Policies, Princeton University Press.
    22. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
    23. de Haan, Jakob, 1997. "The European Central Bank: Independence, Accountability and Strategy: A Review," Public Choice, Springer, vol. 93(3-4), pages 395-426, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Louis Jaeck & Sehjeong Kim, 2018. "FDI Deregulation Versus Labor Market Reform: a Political Economy Approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(1), pages 73-89, March.
    2. Elżbieta Bednarek-Sekunda & Richard Jong-A-Pin & Jakob de Haan, 2010. "The European Economic and Monetary Union and Labour Market Reform," European Union Politics, , vol. 11(1), pages 3-27, March.
    3. Graham Mallard, 2014. "Static Common Agency And Political Influence: An Evaluative Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 17-35, February.
    4. Campos, Nauro F. & De Grauwe, Paul & Ji, Yuemei, 2023. "Structural reforms and economic performance: the experience of advanced economies," LSE Research Online Documents on Economics 120870, London School of Economics and Political Science, LSE Library.
    5. Kuddo, Arvo, 2009. "Labor laws in Eastern European and Central Asian countries : minimum norms and practices," Social Protection Discussion Papers and Notes 51698, The World Bank.
    6. Stieglitz, Moritz & Setzer, Ralph, 2022. "Firm-level employment, labour market reforms, and bank distress," Journal of International Money and Finance, Elsevier, vol. 120(C).
    7. Tatiana Karabchuk, 2016. "The subjective well-being of women in Europe: children, work and employment protection legislation," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 15(2), pages 219-245, November.
    8. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 1064-1093, September.
    9. Micael Castanheira & Gaëtan Nicodème & Paola Profeta, 2012. "On the political economics of tax reforms: survey and empirical assessment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 598-624, August.
    10. Djankov, Simeon & Amin, Mohammad, 2009. "Democracy and Reforms," CEPR Discussion Papers 7151, C.E.P.R. Discussion Papers.
    11. Alessandro Turrini & Gabor Koltay & Fabiana Pierini & Clarisse Goffard & Aron Kiss, 2015. "A decade of labour market reforms in the EU: insights from the LABREF database," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-33, December.
    12. Zhihao Yu, 2006. "The Fear of Competitive Pressure of Globalization and Outsourcing," Carleton Economic Papers 06-09, Carleton University, Department of Economics, revised Jul 2011.
    13. Agnello, Luca & Castro, Vitor & Jalles, João Tovar & Sousa, Ricardo M., 2015. "What determines the likelihood of structural reforms?," European Journal of Political Economy, Elsevier, vol. 37(C), pages 129-145.
    14. Richard Pomfret & John K. Wilson & Bernhard Lobmayr, 2009. "Bidding for Sport Mega-Events," School of Economics and Public Policy Working Papers 2009-30, University of Adelaide, School of Economics and Public Policy.
    15. Lucian A. Bebchuk & Zvika Neeman, 2010. "Investor Protection and Interest Group Politics," NBER Chapters, in: Corporate Governance, National Bureau of Economic Research, Inc.
    16. Laing, Timothy & Palmer, Charles, 2015. "Economy-wide impacts of REDD when there is political influence," Resource and Energy Economics, Elsevier, vol. 40(C), pages 107-126.
    17. Hefeker Carsten, 2019. "Helping with the Homework: Support Mechanisms for Uncertain Reforms in a Monetary Union," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(5-6), pages 983-1004, October.
    18. Lubos Pástor & Pietro Veronesi, 2012. "Uncertainty about Government Policy and Stock Prices," Journal of Finance, American Finance Association, vol. 67(4), pages 1219-1264, August.
    19. Rodrik, Dani, 1994. "What does the Political Economy Literature on Trade Policy (Not) Tell Us That We Ought to Know?," CEPR Discussion Papers 1039, C.E.P.R. Discussion Papers.
    20. Dapeng Cai & Jie Li, 2020. "Pollution for Sale: Firms’ Characteristics and Lobbying Outcome," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(3), pages 539-564, November.

    More about this item

    Keywords

    European Monetary Union; Lobbying; Common agency; Monetary policy; Structural reforms; D72; E52; E58;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:iaecre:v:20:y:2014:i:1:p:73-86:10.1007/s11294-013-9449-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.